India’s Economy Amid Global Shifts

GS3 – Indian Economy

India’s economy is facing increasing external pressures due to rising geopolitical tensions, trade wars, tariff uncertainties, and disruptions in global supply chains.

Global Challenges: Key Concerns for India
  1. Trade Uncertainty
    • Escalation of trade wars and tariff changes, especially involving the U.S. (India’s top export destination).
    • Sectors at risk: Apparel, gems & jewellery, pharmaceuticals, electronics, auto components.
  2. Tariff-Related Risks
    • Possible reciprocal tariffs by the U.S. could severely affect MSMEs relying on U.S. markets.
    • Volatile trade policies hinder long-term export planning and order fulfilment.
  3. Dumping Threat
    • China and ASEAN countries, with surplus goods, may dump products into India.
    • This poses a risk of unfair competition and price undercutting, especially in low-cost sectors.
India’s Strategic Response

Strategic Trade Negotiations

  • India–U.S. Bilateral Trade Agreement (BTA):
    • Aims to reduce tariffs in key sectors.
    • Focus on resolving non-tariff barriers (NTBs) and establishing mutual recognition agreements.
  • Expanding Free Trade Agreements (FTAs):
    • UK FTA is close to completion.
    • India is expediting FTA talks with the EU, Australia, and others to diversify export markets and reduce reliance on a few regions.

Domestic Economic Resilience

  • Anti-Dumping Measures:
    • Strengthening India’s trade remedial framework to counter predatory pricing and protect domestic industries.
  • Public Capital Expenditure:
    • Continued investment in infrastructure will sustain growth and attract private capital, especially when global demand is weak.
  • Monetary Policy:
    • With inflation under control, accommodative policy (including interest rate cuts) may boost consumption and investment.

Note: Predatory pricing refers to selling products below cost to eliminate competition and create monopolies.

Investment & Industrial Strategy

  • Anchor Foreign Investment:
    • Leverage the China+1 strategy by attracting firms to set up manufacturing units in India, particularly in:
      • Electronics
      • Semiconductors
      • Green technologies
  • Expand PLI Schemes:
    • Broaden the scope of Production-Linked Incentive (PLI) schemes to cover:
      • IoT devices
      • Wearables
      • EV battery components
    • Supports both manufacturing expansion and employment generation.
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